This is the 9th in this year’s series of posts by PhD students on the job market.
Firm-government corruption remains a pervasive issue in many developing countries, manifesting in forms such as bribery, misuse of public funds, nepotism, and many other illegal activities. This corruption not only affects economic growth and social development, but also impacts labor welfare. For example, workers can find their bargaining power diminished in environments where firm-government corruption is rampant. This is because such corruption can provide firms with undue protection or leverage (Faccio, 2006), skewing bargaining powers to the firms and undermining workers' ability to secure favorable conditions.
In my job market paper, I explore how firm-government corruption in China can undermine workers' potential gains from strikes. Prior to my study, many Chinese newspaper articles provided stories about politically powerful firms neglecting to pay workers wages. One notable story illustrates that when workers reported their unpaid wages to the local labor bureau, the firm in question contacted the same bureau, resulting in the abrupt dismissal of the case. Many workers, left unsupported by their employers and ignored by the local labor bureau despite their appeals, considered striking, only to be met with indifference from the firms.
How did China’s anti-corruption campaign affect labor strikes?
Answering the causality between corruption and strikes poses challenges, primarily because it requires a plausibly exogenous shift in corruption levels to understand how a weakening firm-government relationship could influence workers' decisions to strike. China's 2012 anti-corruption campaign, launched by President Xi Jinping, offers a unique opportunity to investigate this question. Despite various political motives behind Xi’s campaign, the public exposure to inspections of high-ranked government officials served as a shock to society, demonstrating that even the most locally powerful figures were not above scrutiny.
Between 2013 and 2014, the Commission for Discipline Inspection (CCDI), the governmental body overseeing the anti-corruption campaign, dispatched four rounds of investigations throughout all provinces. After the CCDI inspection team arrived in a province, it conducted local inspections into high-ranked officials (a city-level bureaucrat, such as a mayor) in each city within the province. Local media subsequently reported these inspections. Therefore, I can leverage the variation in the timing of the first inspection of a city’s high-ranked official to examine its impact on strike activities. Indeed, a city can experience a surge in various types of inspections once the inspection team arrived, but it was the first high-ranked inspection, potentially along with its subsequent inspections, that solidified public perception of the onset of a wave of local inspections within the city.
The main finding of my study shows that strikes surged within three months after a city underwent its first high-ranked inspection, provided that the CCDI inspection team was present in the city’s province. A year following the first high-ranked inspection, the monthly frequency of strikes in a city doubled from the counts before the inspection. By the second year, it had tripled. This result indicates that workers promptly strike in response to changes in the local political environment.
Where did the strikes come from?
The majority of the surge in strikes originated from construction and manufacturing workers, a demographic that is economically and socially vulnerable. These low-skilled workers, nearly half of whom are migrants from rural to urban areas in China, often lack official residential status in their working cities. Consequently, they frequently face illegal contracts or no contracts at all from their employers, leading to situations where they work for a period as cheap labor but are not paid.
Although I lack firm-level data to establish a direct link between the inspections and these workers' employers, my analysis shows that the primary reason behind these increased strikes was the non-payment of wages by employers. Hence, my findings strongly suggest that when these workers perceived a weakening connection between their employers and the government, they were more likely to advocate for their rights.
Moreover, there was an evident spillover of these strikes. As one city underwent its inspection and consequently saw a rise in strikes, its neighboring cities, even those yet to be inspected, began to witness a surge in strikes. After conducting several analyses, I found that the proliferation of strikes originated from workers in neighboring cities who, upon witnessing strikes in adjacent areas, became motivated to take similar action, rather than from strategic predictions of inspection timings. These patterns underscore the influence of social networks, suggesting that the observation of a strike in one city can inspire workers in nearby cities to initiate their own strikes.
What mechanisms were behind the increase in strikes following inspections?
My paper argues that the inspections emboldened workers to strike more after they perceived weakening local firm-government ties. If this argument is valid, then I would expect most of the surge in strikes to come from cities that were notably more corrupt before the anti-corruption campaign, as the workers, previously discouraged from striking, initiated strikes in response to the inspections.
My findings confirm that the majority of the surge in strikes originated in cities with an above-median level of corruption prior to the campaign. To measure a city's prior corruption level, I utilized Chen and Kung (2019)'s observations of princeling firms, or those firms linked to the Chinese Communist Party (CCP) Politburo, within a city. I found that cities with an above-median number of princeling firms per capita experienced the most substantial surge in strikes. I then employed multiple strategies to rule out other potential explanations, such as an increase in media reports on strikes following inspections, a decline in public trust after inspections, or firms experiencing profit losses that consequently affected workers post-inspections.
How bad is corruption to workers?
The surge in strikes sheds light on the less obvious costs of corruption. Using a back-of-the-envelope calculation, I estimated that the forgone wages resulting from the increase in strikes amount to up to $1.2 billion yuan (or $170 million), equivalent to 1% of the median GDP of Chinese prefecture-level cities in 2013. This figure represents the forgone wages of workers who were prompted to strike after observing corruption inspections but would not have done so otherwise. Thus, these forgone wages signify the hidden welfare losses, or grievances, endured by workers if the anti-corruption campaign did not take place.
In conclusion, understanding the impact of firm-government corruption on worker welfare is crucial. As my study shows, reducing corruption, or at least the public perception of corruption, can empower workers to take collective action to advocate for their rights and make their demands more salient. Transparent governance, then, is more than just an ethical necessity; it's a cornerstone of worker welfare.
Huiyi Chen is a PhD student at Cornell University.